Legal Operations

The Price You Pay -- And How You Pay It

The 11th Blickstein Group Annual Law Department Operations survey shows alternative fee arrangements still on the rise.

By Brad Blickstein  
on

This year’s Blickstein Group Law Department Operations Survey Report, published in collaboration with Consilio, is titled “The End of the Duopoly” because law departments, led by their legal operations professionals, are focusing more and more on new ways to get legal work done. No longer are the law department itself and its law firms the only options. More and more work is getting done under alternative legal service providers, by offshore legal process outsourcers, through automation and technology, or under self-service models. The majority of work, however, is still done by law firms, which means that legal operations professionals’ remit continues to include finding ways to better align with firms. And in many instances, that means alternative fee arrangements.

According to this year’s survey, almost 88 percent of respondents’ law departments have tried alternative fee arrangements of one type or another, and 71 percent believe that AFAs are more cost-efficient than hourly rates — a big jump from 62 percent last year.

Nevertheless, the most common types of AFAs in use are designed for predictability, not necessarily cost efficiency. Almost all of those who have tried AFAs have tried “flat fees per matter” (86 percent of total respondents), with “flat fee to handle all matters in a given area” (75 percent), and “flat fee by matter stages” not far behind (63 percent).

Survey respondents’ top two key performance indicators include both total spend and predictability — the top KPI is “total outside counsel spend,” followed closely by “actual spend vs. law department’s total budget.” What’s interesting is that more law departments have built AFAs that serve the second KPI, but fewer for the first. As legal operations strategies gain better alignment with the departments’ objectives, expect to see more volume discounts (57 percent this year), fixed fee with collar or cap (52 percent), and discounts with possible bonus (36 percent).

With so much focus on predictability, perhaps it’s no surprise that litigation is far and away the most common practice area where AFAs are deployed. More than 71 percent say they use AFAs in litigation (labor and employment at 45 percent and intellectual property at 43 percent were the next most common responses), despite the conventional wisdom that litigation is too complicated for alternative fee arrangements. It seems that legal operations professionals are willing and able to try new approaches to add some predictability to their litigation spend.

And make no mistake, it is the client-side that is developing these programs. Only 33 percent believe that “our law firms do a good job at suggesting AFAs that meet our needs.” There is some hope, however. Law firms, at least, are no longer perceived as getting in the way: only 11 percent of legal operations professionals list “law firm unwillingness” as their biggest impediment to using AFAs. (Interestingly, the most common response was “unpredictable nature of matter activity” at 30 percent.) The trend towards dedicated pricing professionals may make a difference as well. More than half of the survey respondents believe they make it easier to implement effective AFAs.

What’s the future of alternative fee arrangements? Continued growth. Today, 23 percent of legal operations professionals claim that more than half their matters are handled under AFAs. They predict, however, that number to almost double to 41 percent in three years. With more legal operations professionals focusing on metrics and value, and better alignment between objectives and strategy, that seems likely to happen.

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Brad Blickstein is principal of the Blickstein Group, which has two missions: to help legal service providers better understand and serve their clients and to provide information about law departments and legal operations. He is the publisher of the Annual Law Department Operations Survey, which for 11 years has provided the most comprehensive data and analysis on the Legal Operations function.

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